Gold Resource Corp. Misses 2014 Production Guidance, But Shares Remain A Strong Buy
Feb. 11, 2015 4:27 PM ET | 1 comment | About: Gold Resource Corporation (GORO)
Disclosure: The author is long GORO.
Summary
Gold Resource Corp. has announced preliminary production results and missed its 2014 guidance. .
The company produced 19,057 ounces of gold equivalent for the last quarter and 83,902 ounces for all of 2014, below the full-year guidance of 85,000 ounces.
However, I still believe the stock is undervalued and holds tremendous upside potential.
Gold Resource Corp.
Gold Resource Corp. (NYSEMKT:GORO), a Mexican gold producer targeting projects that feature low operating costs and high returns on capital, just announced its 2014 preliminary production results. For the year, the company increased annual gold production by 4.7% an annual silver production by 8.7%. For the fourth quarter, Gold Resource produced 19,057 ounces of gold equivalent and 83,902 ounces for all of 2014, which was just below the company's guidance of 85,000 ounces. Gold production for 2014 was 35,552 ounces, with silver production of 3.29 million ounces.
I have previously recommended Gold Resource Corp. here on Seeking Alpha for a few reasons. First, the company is a profitable gold and silver producer based in Mexico, a solid mining jurisdiction. The company's El Aguila mine cost just $34 million to start production but has returned several times that cost in cash flow. On an all-in sustaining cost basis per gold ounce, Gold Resource produces gold at less than $850-$900 per ounce, which means $300+ margins at current gold prices.
Although Gold Resource missed its production guidance, I am still very bullish on shares. One main reason is the company's outstanding exploration success. Recently, the company announced high grade drill intercepts at Alta Gracia, including one drill that intersected 1,383 g/t silver and 1.53 g/t gold over 5.06 metres. This was followed up two weeks later with arguably even better drill results at El Aguila, including 6.12 metres of 5.53 g/t gold and 4.15% zinc, and 1.71 metres of 13.45 g/t gold and 860 g/t silver. Other drill holes at the Las Margaritas deposit included silver grades as high as 2,600 g/t. These results will most definitely lead to an upgraded resource estimate in 2015, and perhaps an increase in annual production and mine life extension.
Arguably more impressive is the fact that Gold Resource Corp. has maintained such a tight share structure during the bear market in gold and silver. Currently, Gold Resource has 54.18 million shares outstanding, and this has barely changed over the years. So while other gold and silver juniors have had to issue equity to fund operations, Gold Resource has not, which means far more upside potential. What's more, Gold Resource pays a monthly dividend of $.01 and the stock yields 3.5% currently. Since its inception, Gold Resource has paid out over $100 million in dividends to shareholders.
Gold Resource still has a great balance sheet, too, with $24.8 million in cash and just $2.78 million in debt as of the end of the last quarter. With an enterprise value of $157 million and annual EBITDA of $28.7 million, the stock is trading at an EV/EBITDA of just 5.46, according to Yahoo Finance. In addition, insiders own 22.51% of the stock, with management owning 7%.
Gold Resource Corp. is currently finalizing its 2015 production outlook, so stayed tuned. The company had previously guided for production in the range of 110,000 to 120,000 ounces of gold equivalent.
With a solid balance sheet, a stable monthly dividend, profitable production and tremendous exploration potential at its Mexican properties, I consider Gold Resource Corp. as one of the best junior miners in the industry.
